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Tuesday, March 10, 2015

A Review of the Competition (Amendment) Bill, 2012- II

In this post, I
shall continue with my review of the Competition (Amendment) Bill, 2012 from
the last
post. Clause 6 of the Bill introduces Section 5A which empowers the Central
Government to specify, by notification, different values of assets and
turnovers based on the class or classes of enterprise for the purposes of
Section 5 which defines a combination. The stated object of this proposed new
provision is to provide the Government with a tool which is much more attuned
to the dynamics of different market segments.

Unlike the current Section 20(3), which envisages a modification in the thresholds for Section 5 only once every two years, the proposed Section 5A is not encumbered by any such restrictions. Also, the basis for change in thresholds as spelt out by Section
20(3), namely fluctuations in the wholesale price index or exchange rate of the
Rupee, is absent in the proposed Section 5A. This perhaps could mean that
thresholds may be altered with a specific view to address market anomalies and
not merely to adjust the thresholds for inflation.

Critically, the
proposed Section 5A retains the aspect of consultation by the Government with
the CCI in altering the thresholds of assets and turnover. This raises an
interesting question regarding the nature of the CCI. Since the Government is
merely expected to consult the CCI and not seek its consent in changing the
thresholds, could it be argued that Sections 5 and 5A in particular, and the
Competition Act in general, are instrumentalities which further the economic
policy/vision of the Government of the day (the Executive)? If so, is the CCI
itself a part of the Executive despite performing several adjudicatory
functions? Questions such as these were left open-ended by the Supreme Court in
Brahmdutt v. Union of India
and will hopefully be answered in the on-going Writ Petitions (W.P (C) Nos. 7638, 7087, 6634 and 6610 of 2014) before the Chief
Justice of the Delhi High Court filed by auto majors BMW, General
Motors, Mercedes Benz and other parties to the auto spare parts decision of the
CCI. Among other things, the
constitutionality of the CCI is under challenge in these petitions.

The next
proposed amendment is the one to Section 26 by Clause 11 of the Bill.
Here are the relevant extracts of Section 26 as they read currently:

Procedure for inquiry under section 19

26. (1) On receipt of a reference from the Central
Government or a State Government or a statutory authority or on its own
knowledge or information received under section 19, if the Commission is of the
opinion that there exists a prima facie case, it shall direct the Director
General to cause an investigation to be made into the matter: Provided that if
the subject matter of an information received is, in the opinion of the
Commission, substantially the same as or has been covered by any previous information
received, then the new information may be clubbed with the previous
information.

(3) The Director General shall, on receipt of
direction under sub-section (1), submit a report on his findings within such
period as may be specified by the Commission.

(5) If the report of the Director General referred to
in sub-section (3) recommends that there is no contravention of the provisions
of this Act, the Commission shall invite objections or suggestions from the
Central Government or the State Government or the statutory authority or the
parties concerned, as the case may be, on such report of the Director General.

(6) If, after consideration of the objections and
suggestions referred to in sub section (5), if any, the Commission agrees with
the recommendation of the Director General, it shall close the matter forthwith
and pass such orders as it deems fit and communicate its order to the Central
Government or the State Government or the statutory authority or the parties
concerned, as the case may be.

(7) If, after consideration of the objections or
suggestions referred to in sub section (5), if any, the Commission is of the
opinion that further investigations is called for, it may direct further
investigation in the matter by the Director General or cause further inquiry to
be made by in the matter or itself proceed with further inquiry in the matter
in accordance with the provisions of this Act.

(8) If the report of the Director General referred to
in sub-section (3) recommends that there is contravention of any of the
provisions of this Act, and the Commission is of the opinion that further
inquiry is called for, it shall inquire into such contravention in accordance
with the provisions of this Act.

A reading of
Sub-section 6 reveals that if the CCI agrees with the finding of the DG that
there is no contravention of the Act, it shall close the matter. The language
of Sub-sections 7 and 8, however, seem incoherent and incomplete. Sub-section 7
alludes to a situation where the CCI does not agree with the DG that there is
no contravention of the Act, in which case it may direct further investigation
by the DG. The reference to “cause further inquiry to be made in the
matter or itself proceed with further inquiry in the matter” is to a situation where the CCI may choose not to seek the DG's assistance for further inquiry. If such further inquiry does not yield results, Sub-section 7 does not explicitly empower the CCI to close the matter, but practically speaking one would think the logical consequence would be for the CCI to agree with the DG’s finding of no contravention under Sub-Section 6. After all, the CCI cannot endlessly enquire into the matter. However, if further enquiry reveals contravention of the Act,
Section 26 and Regulation 21 of the CCI General Regulations are unclear if the
CCI has the power to pass orders based on its findings.

Similarly, under
Sub-section 8 which deals with a situation where the DG finds contravention of
the Act, it is unclear if the CCI may pass orders if it agrees with the DG
although this appears to be logical conclusion. If, however, the CCI does not
agree with the DG, Sub-section 8 does not appear to permit the CCI to close the
matter. Despite the absence of such
power to differ with the finding of contravention by the DG and to close matters,
the Standing Committee has observed that until February 2014, in 42 cases the
CCI differed with the DG’s finding of contravention. In order to avoid such
anomalies, the Bill proposed to insert “and make appropriate orders thereon
after hearing the concerned parties” in both Sub-sections 7 and 8. Further, one
of the recommendations of the Committee is to retrospectively provide a limited
window of appeal to parties which have suffered as a consequence of closure of
their matters by the CCI despite a finding of contravention by the DG. I am of the view that consequential amendments to CCI General Regulation 21 too must be effect to avoid any further voids.

In addition to
the above amendments, the Bill also provides for a hearing to a party on which
penalty is sought to be imposed by the CCI. Finally, the Bill seeks to empower
the Chairperson of the CCI to approve search and seizure by the DG, who is
currently required to seek the approval of Chief Metropolitan Magistrate.
However, the Standing Committee has observed that such a change is premature
considering that no flaws have surfaced thus far with respect to the existing
mechanism. In its parting recommendation, the Committee has drawn the
Government’s attention to the following questions/issues:

(i) Whether the
Commission should be a body comprising of only retired persons or it should be
a smaller multi-disciplinary body consisting of domain experts;

(ii) Whether
more substantive amendments are required to enable the CCI to play a more
vibrant and meaningful role in the economic development of the country like
creation of robust data-base and formulation of coherent norms/principles in
prevention/detection of cartels, price-manipulation/rigging and other market
practices inimical to competition and orderly functioning of markets;

(iii) Whether
the CCI should enhance its capacity to take cognizance of emerging trends and
developments in industry relating to “unfair dominance” or “monopolistic
practices”, such as cross-holdings in media ownership.

(iv) Protection
of consumer interest through periodical studies/surveys on trends of consumer
prices in different sectors.

(v) Whether the
law should be designed in a manner that is unduly restrictive with rigid
thresholds or should it be a facilitator for growth of business and industry
while promoting fair play and freedom in competition and reasonable prices for
consumers.

In my opinion, these
are thought-provoking high-level issues which are worth ruminating over since they have a critical bearing on the role we expect the CCI to play in furthering
its mandate under Section 18 of the Act.